Cost of money lying idle

Your investment ought to beat the inflation !!!

Money in savings account + 1,00,000
Interest earned in 1 year (@4.00% per annum) + 4,000
1,04,000
Impact of Inflation (@5% per annum) - 5,000
Value at the end of year 1 99,000
Investment proposition
Traditional Investment


- Post office Savings


- Provident funds


- Bank Fixed Deposits



Modern /Alternative Investment


- Exchange traded funds (ETFs)


- Bonds and Equity Securities


- Commodities (Gold)


- Pooled Investment Vehicles
(Mutual Funds)




Less Risky but lower /Stable Returns
More comfort & safety presumption
Risk depends upon product.
Volatile returns
Some category of Mutual funds are an exception
Key Investment Considerations
You get your
money back
You get your money back when you want it
How easy is it to invest, disinvest
and adjust to your needs?
How much is really left for you post tax?
Challenges involved investing directly in Capital Market
i. Time
ii. Expertise
iii. Lack of Information
iv. Portfolio
v. Volatility
What is Mutual Fund and Why Mutual Fund
A mutual fund is the trust that pools the savings of a number of
inventors who share a common financial goal.
Anybody with an investible surplus of as little as a few hundred
rupees can invest in Mutual Funds.
The money thus collected is then invested by the fund manager in
different types of securities. These could range from shares to
debenture to money market instruments, depending upon the
schemes stated objective.
It gives the market returns and not assured returns.
In the long term market returns have the potential to perform
better than other assured return products.
Mutual Fund is the most cost efficient distributors of financial
products
How Mutual Fund works?
A vehicle for investing in portfolio of stocks and bonds
Structure of Mutual Fund
SPONSOR (1
st
Tier) : who thinks of starting a MF; approaches SEBI, the Market
regulator.
TRUST (2
nd
Tier) With SEBI approval Sponsor creates a contracts are entered into,
in the name of Trustees, who ensure the interests of Investors.
AMC (3
rd
Tier): Who manages investors money & in return, charges a fees for the
services provided. AMC functions under the direction of the Trustees & SEBI. They
appoint a Fund Manager, who carries out thorough research & detailed analysis
before investing. Operations are looked after by the Custodian, whose function is to
ensure safe keeping of physical securities & keeping a tab on corporate actions like
rights, bonus & dividend declared
Mutual Funds in India follow a 3-Tier Structure
Indian MF Industry At a Glance
Sr No Mutual Fund Name Corpus
1 HDFC Mutual Fund 101,720
2 Reliance Mutual Fund 94,580
3 ICICI Prudential Mutual Fund 87,835
4 Birla Sun Life Mutual Fund 77,046
5 UTI Mutual Fund 69,450
6 SBI Mutual Fund 54,905
7 Franklin Templeton Mutual Fund 41,564
8 Kotak Mahindra Mutual Fund 35,361
9 IDFC Mutual Fund 32,886
10 DSP BlackRock Mutual Fund 32,342
i. 44 AMCs are in India
ii. AUM as on 31
st
March 13 was Rs 7,01,443 Cr
iii. Q4 Avg AUM was Rs 8,16,657 Cr
iv. Top 10 AMCs are managing 75-80% of overall AUM
Key Terms
It is calculated by dividing the total value of securities in a portfolio,
less any liabilities by the number of Funds shares outstanding.
Computed each day, based on the closing market price of the
securities in the portfolio.
All Mutual Funds Buy & Sell orders are processed at the NAV of the
trade date.
A. Net Assets Value (NAV):
The launch of a new scheme by the AMC.
Similar to an IPO, an attempt to raise capital for further operations.
B. New Fund Offer (NFO)
Prepared at the time of launching the fund.
Specifies investment objectives, risk associated and cost involved.
C. Offer Document
D. Sale Price
Price you pay when you invest in a scheme. It may include a Sales
load/Entry load.
E. Redemption Price
Price at which schemes repurchase their units or redeem their units on
Maturity usually at prevailing NAV.
An Exit load is sometimes charged.
F. Assets Allocations
Allocation of the portfolio of a mutual fund in various categories of assets such as equity,
debt and others on the basis of the investment objective of the scheme. The process of
diversifying investments among different types of assets like stocks, bonds and cash in
order to optimize risk / return tradeoff based on a person's financial situation and goals.
G. Capital Gain
The gains made on sale of securities and certain other assets (including units of mutual
funds) are called capital gains. The gains can be long-term or short-term depending on the
period of holding of the asset and are charged to tax at different rates. Gains on mutual
fund units held for a period of 12 months or more are long-term gains.
H. Capital Appreciation
An increase in the value of an investment, measured by the increase in a fund unit's value
from the time of purchase to the time of redemption.
I. Corpus
The total amount of money invested by all the investors in a scheme
J. Diversification
The investment strategy which spreads investments among securities in different industries,
with different risk levels, and in different companies, potentially lowering risk by reducing
the impact of any one security. Mutual funds are the best method of diversification because
their portfolios consist of a variety of securities, unless otherwise noted. Mutual funds are a
diversified investment by nature.
K. Portfolio
A pool of individual investments owned by an investor or mutual fund. Portfolios may include
a combination of stocks, bonds, and money market instruments. A list of the fund's current
portfolio will usually be contained in a mutual fund's annual report
L. Credit Rating
A measure indicating the bond/Debt issuer's credit worthiness, or his/ her ability to repay
the loan. The bonds are rated by an independent rating agency such as CRISIL (Credit
Rating Information Services of India Limited ) , ICRA (Investment Information and Credit
Rating Agency ), CARE (Credit Analysis & Research ) Fitch India.
Long Term Rating symbols
AAA Highest Safety
Any Adverse changes in circumstances are most unlikely to
affect the payment on instruments.
AA High Safety
They differ only marginally in safety from AAA issues.
A Adequate Safety
Changes in circumstances can adversely affect such issues more
than those in the higher rating category.
BBB Moderate Safety
Changes in circumstances can adversely affect such issues more
than those in the higher rating category.
Short Term Credit Rating Symbols
P-1
This rating indicates that the degree of safety regarding timely payment on the
instrument is very strong
P-2
This rating indicates that the degree of safety regarding timely payment on the
instrument is strong; however, the relative degree of safety is lower than that for
instruments rated 'P-1'.

P-3
This rating indicates that the degree of safety regarding timely payment on the
instrument is adequate; however, the instrument is more vulnerable to the adverse
effects of changing circumstances than an instrument rated in the two higher
categories.
P-4
This rating indicates that the degree of safety regarding timely payment on the
instrument is minimal and it is likely to be adversely affected by short-term adversity
or less favorable conditions.
P-5
This rating indicates that the instrument is expected to be in default on maturity or is in
default.
CLASSIFICATION OF MUTUAL FUNDS
A. OPEN-ENDED FUNDS
Allows the investor to enter and exit at his convenience.

Investors can buy and sell units of the fund, at NAV related prices, at any time
directly from the fund.
B. CLOSE ENDED FUNDS
A close ended fund is open for enter to investors on a specified period after
which further entries are closed, similarly exit is also happen on specified date.
Any further transaction happen in the secondary market where close-ended
funds are listed.
The price at which the units are sold or redeemed depends on the market
prices, which are fundamentally linked to the NAV.
Classification by Constitution
A. Equity Fund
Funds invest a major part of their corpus in Equity.
Good for an investor seeking capital appreciation over a long term.
High Risk with market linked return
B. Debt Fund
Invests in fixed income securities such as Bonds, Debentures, G- Sec etc.
Less Risky as compared to Equity schemes
NAVs are affected by changes in interest rates
Classification by Investment Objective
Invests both in Equity & Fixed Income securities.
Provide both growth & regular Income.
Fund affected by fluctuation in share prices & interest rates

Part of debt segment only, category is created by regulator
Invests exclusively in safer short-term instruments such as ;
T-Bills, CODs, CPs,
Inter-Bank Call Money etc.
Provide easy liquidity, preservation of capital & moderate income
Fund affected by short term interest rates
Provide consistent return
C. Hybrid Fund
D. Money Market Fund
Classification by Investment Objective ( Cont)
A. Diversified Fund
Fund invests in Equity Markets only
Exposure is on various sectors of market e.g., auto, real estate, FMCG etc.
Exposure may be in the in various segment of the market e.g., Large cap, Mid cap,
Small cap etc.
Return is quite volatile in short horizon
Performance is based on underlying segment/ sectors
Offer Tax rebates to the investor under the Income Tax Act, 1961.
Govt. offers tax incentives for investment in specified avenues e.g.,
ELSS
Rajiv Gandhi Saving Scheme
B. Tax Saving Funds
Other Classifications
C. Index Funds
These funds replicate the portfolio of a particular index such as
Sensex
Nifty 50.
Invests in securities in the same weightage which comprises of the index.

D. Sector Specific Funds
These fund invests in the securities of a particular sector as specified in the
offer document eg., Pharmaceuticals ,FMCG, Oil stocks etc.
Returns are dependant upon performance of particular sector.
Monthly Income Plans (MIPs)
Offers fixed / regular monthly income to the investors.
Invests a small portion in Equity & a major portion in
Debt & Money market instruments.
Child Benefit Plans
Debt oriented funds with little component invested in Equity.
Parents usually invest with a 5-15 Year horizon to meet their
Childrens future expenses.
Income options from Mutual Fund investments
A. Growth Option
Suitable for investors looking for capital appreciation in Equity Market e.g.,
Investor invests Rs. 1 lakh in Equity scheme by subscribing to 1000 units @
NAV of Rs.100 per unit
Scheme delivers a return of 12%, NAV grows to 112, making his money grow
to Rs.12000
B. Dividend Pay-out Option
Investor is paid out dividend from the profit earned, Considering above Eg., In this
case, investor would receive Rs.12000 as dividend but his NAV would fall by Rs.12 to
Rs.100 after an year
Dividend would be paid after deduction of DDT (Dividend Distribution Tax)
C. Dividend Re-investment Option
Investor chooses to invest back the dividend in the scheme . so, Rs.12 which he
receives as dividend gets re-invested into the scheme @ Rs.100. Thus, investor gets
an (12000/100 =120) additional units.
NOTE: Notice here, the return in case of all the three options would be same. For
Growth Option, the investor will have 100 units @ 112, which equals to Rs.
1,12,000 while for Dividend Reinvested Option the investor will have 1120 units @
Rs. 100 which again amounts to Rs. 1,12,000. Thus it can be seen that there is no
difference in either Growth or Dividend Reinvestment Plan.
Mutual Fund- How to invest in Mutual Funds
Selection Process- 3 step process
Step 1 Identify your
investment needs
1. What are my investment
objectives and needs?
2. How much risk am I willing
to take?
3. What are my cash flow
requirements?
Step 2 Choose the right mutual
fund.
1. The track record of
performance over the last few
years in relation to the
appropriate Benchmark and
similar funds in the same
category
2. How well the mutual fund is
organized to provide efficient,
prompt and personalized
service.
3. Degree of transparency as
reflected in frequency an d
quality of their
communications.
Step 3 Select the ideal
mix of schemes
Investing in just 1
scheme may not meet
all your investment
needs. You may consider
investing in a
combination of schemes
to achieve your specific
goals.
Mutual Fund: How to buy?
Financial Goals
Identify What to Buy
Evaluate Funds from various Mutual Fund Cos.
Online Offline
Mutual Fund Co. and
others
Financial Distributor
Fill Up Form
Attach Relevant Documents
Submit
Banks,
Financial Svc.
Cos.,
Brokers,
Individual
Agents
A. Lum-sum or One time Investment
Investor can invest the desired amount in one go/ one time
B. Systematic Investment Plan (SIP)
It entails a investor fixed sum of money at regular interval e.g, Daily,
Weekly, Fortnightly, Monthly, Quarterly etc.
in a particular scheme chosen by investor.
Best suited for young people who just started their career
Advantageous for longer tenor
Allows an investor to transfer on periodic basis a specified
amount from one scheme to another within the same fund Family.
C. Systematic Transfer Plan (STP)
Method of Investments
Mutual Fund- Which one to buy?
Your
Investment
goal
Capital
Preservation
Generate
Income
Capital
Appreciation
Based on your goals
and risk apetite
Savings Bank Account Fixed Deposits Real Estate
PPF Post office Monthly Income Scheme Gold
Cash Funds Debt Funds Equity Funds
Mutual Funds
Mutual Fund Products Risk / Return Graph
Lo
Med
Hi
Liquid fund
Ultra Short Term Funds
Short Term Funds
GILT & Bond Funds
Hybrid & MIP
Lo Med
Hi
Index Fund
Arbitrage Funds
Balanced Funds
Diversified Funds (ELSS)
Sectoral Funds
Debt
Equity
>> Risk <<
>> Risk <<
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Mutual Fund: How to redeem?
Fill-up relevant details
(You could do partial redemption as well)
Sign the Form
(All applicants to the units need to sign)
Submit
(Submit the form to the Branch of the specific Mutual Fund Co.)
Money into your Bank Account
(Money gets credited to you as per the scheme-specific turnaround time)
Choose redemption
Download Common Transaction Slip
(Download from Mutual Fund Companys website or get it from the branch)
A. Systematic Withdrawal Plan (SWP)
Investor invest in a scheme and is allowed to withdraw a
fixed sum of money at regular Intervals to meet his expense.
Best suited for people nearing retirement.
B. One go Redemption
Allows an investor to redeem in one go
Method of Redeemption
A. Performance
Performance Report on valueresearchonline.com
B. Portfolio Monitoring
Investments Monitoring
Name of Mutual Fund Schemes
Annualized
ROI
ICICI Prudential Banking and Financial Services Reg 43.16
Reliance Shares Banking ETF 41.49
JP Morgan ASEAN Equity Off Shore 41.47
SBI FMCG 41.35
Goldman Sachs Banking BeES 40.17
Religare Invesco Banking 40.14
Reliance Media & Entertainment 39.85
UTI Banking Sector Reg 37.45
Sundaram Entertainment Opportunities Inst 36.75
Reliance Banking 36.60
Available sites for MF Informations
i. fundsupermart.co.in
ii. valueresearchonline.com
iii. moneycontrol.com
iv. nrimutualfunds.com
v. amfiindia.com
vi. mutualfundindia.com
vii. Individual mutual fund sites
ADVANTAGES
Professional Management
Diversification
Low Cost
Convenient Administration
Transparency
Flexibility
Choice of Schemes
Well regulated
Dis- Advantage
Fluctuating Returns
Over Diversification
Costs
Misleading Advertisements
Evaluating Funds